Those with a sense of market history have known for a long time that dividends have been an important part of stock market returns. Approximately 40% of the long-term return from investing in stocks has come from dividends. What's more, the highest-yielding quintile has had substantially higher returns than the lowest.
Now in this era of extremely low interest rates and especially with the retirement of the Baby Boomer generation, it seems that everyone has learned the value of dividends. Dividend-oriented mutual fund have had net inflows for 44 straight weeks.
Has this gone too far? Researchers at Merrill Lynch recently found that the highest-yielding shares in the S & P 500 now trade at the biggest premium in at least 20 years versus those with the best dividend growth.
I still think it makes sense to invest in high-yielding stocks (except electric utilities). I also would allocate a portion of assets to stocks with significant cyclicality, in case the U.S. stock market rallies as I expect.
S & P 500: 1315